Does Applying for a Mortgage Tank Your Credit Score?

A lot of folks think that if they apply for a mortgage that their credit score will drop dramatically each time an application gets filled out, think again. What really happens when you apply for a mortgage and your credit is pulled is...

Getting your credit pulled is a requirement when you apply for a mortgage. It's really the only way a mortgage company can determine whether you can qualify for financing and what your rates and fees are going to be.

Now if you are going to apply for multiple forms of credit at the same time, such as a credit card, a mortgage and/or an auto loan, these actions can and most likely will negatively impact your credit score. Each of these applications will generate a hard inquiry on your credit report, which could send a signal to other lending institutions that you are having difficulty managing credit.

This extra damage to your credit score can be side stepped by applying for one form of credit at a time, and limiting the time between each credit inquiry. This is because most credit scoring models group inquiries for the same type of financing (ie., mortgage, auto or student loans). If made within a specific time frame this allows people to comparison-shop without necessarily dinging their credit scores. This timing can vary, but, in most cases, inquiries of one of those types will be counted as one, provided they occur within a 14- to 45-day period, give or take.

When Credit Shopping, remember, there are many different types of credit scores. Different lenders and industries use different models and there can be variations from score to score. As an example, the credit score your auto dealer may look at might be 740 while the score Rockland Financial looks at could be 720.

Also each creditor you do business with reports to the bureaus at different times of the month. So it's normal for your credit score to be different from one month to another and during different times of the month.

So long story short, don't get rate quotes from a mortgage company without having an idea of where your credit stands, it's just setting yourself up for disappointment - Even more so if your actual scores end up being different than your guesstimates. 

*source (credit.com)